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Thursday, May 26, 2016

Chevron CEO John Watson and his Board of Directors seemed terribly out of touch at the company's annual meeting this week where they were once again pounded by the environmental group Amazon Watch and its allies. Watson simply refused to deal with his two key challenges: the $11 billion Ecuador pollution judgment, and climate change.

For shareholders, it was hardly a performance that inspires confidence in the future. Chevron's revenues are down 75% compared to last year and its stock price continues to lag behind its peers. Nobody wants a Luddite running an oil company, but that is what Watson is in danger of becoming.

On Ecuador, Watson arrogantly dismissed the comments of renowned indigenous leader Humberto Piaguaje. A Secoya elder who has seen his village devastated by Chevron's pollution, Piaguaje had traveled from his jungle home to confront Watson directly about the enormous court judgment won by thousands of villagers in 2013. The decision against Chevron has been confirmed by no fewer than 18 appellate judges in Ecuador and Canada.

Yet Watson refuses to pay up, prompting the villagers to try to seize Chevron assets in Canada. Given that Chevron has extremely valuable oil fields and other properties in Canada, it is likely the villagers will collect the entirety of their judgment in that country.

Watson had the gall to suggest to Piaguaje that his thoughts about how Chevron's pollution destroyed the ancestral lands of indigenous groups were not really his own. Surely, Watson said, these thoughts were planted in his head by lawyers. After Piaguaje asserted that Chevron's "blame the victim" strategy in Ecuador is racist, Watson became visibly flustered and turned off the microphone after saying, "I've been trying to answer questions on Ecuador for seven years. I am not going to take any more questions." (For more details, see this account from Amazon Watch and this article by Courthouse News.)

Watson -- who received $22 million in compensation last year -- was even more arrogant on the climate change issue. In contrast to several European-based oil majors, Chevron under Watson's leadership opposed all six resolutions designed to drag the company into the modern world on this most critical of challenges. Watson obviously has no plan to deal with Chevron's stranded asset problem as the world transitions to a clean energy economy. This is a great example of how poor citizenship and flawed decision making combust into a perfect storm of corporate stupidity.

Here are some more signs from the annual meeting that Watson has his head in the sand:

**Also on the Ecuador litigation, Watson was silent on how Chevron's key witness from Ecuador has repudiated his own testimony and admitted lying to get more money from the company. Chevron has paid the witness at least $2 million and moved his entire family to the U.S.; the company's entire defense hinges largely on the testimony of this one witness.

**Watson also completely ignored a whistleblower video that shows Chevron scientists trying to defraud Ecuador's courts by hiding evidence of the company's pollution. The video was given to Amazon Watch by a company insider.

**During the meeting, Watson failed to beat back a shareholder resolution from Newground Social Investment critical of Chevron's mishandling of the Ecuador litigation. The resolution received support from 30% of all shareholders, or a majority of all shares not controlled by the company. This was a stinging rebuke to company management, which has used 60 different law firms to fight the villagers.

**Watson also refused to discuss how Chevron recently dropped a key legal claim against the villagers because the company concluded that its arguments were certain to be rejected by courts.

**Finally, Watson again failed to acknowledge the humanitarian catastrophe in the area of Ecuador where the company operated from 1964 to 1992. Cancer rates have skyrocketed and hundreds if not thousand of people have died from oil-related diseases since Texaco (bought by Chevron in 2002) started to systematically dump toxic waste into the Amazon in the 1960s.

Watson was the Chevron executive who in 2001 fought hard for the merger with Texaco knowing that it had left billions of gallons of toxic waste in its wake. Watson didn't respect the sophistication and determination of indigenous groups at the time; he obviously still doesn't.

Chevron Board members, who are paid around $400,000 per year, remain silent in the face of this fiasco. Most would rather collect their fee by getting along with management when they should focus on exercising their fiduciary duties on behalf of shareholders.

Tuesday, May 24, 2016

Chevron CEO John Watson is getting roughed up in the days leading up to the company's annual shareholder meeting this week as risk related to his historic $11 billion environmental liability in Ecuador continues to increase. The judgment has now been confirmed unanimously by Ecuador's Supreme Court while Canada's Supreme Court has ruled the affected communities can try to seize some of the company's $15 billion worth of assets to pay for a clean-up.

In all, 18 consecutive appellate judges in Ecuador and Canada have rejected Chevron's arguments and ruled in favor of indigenous and farmer villagers from the Amazon who first brought suit in 1993. Chevron's global game of forum shopping is running out of steam -- the company is facing a true litigation catastrophe in Canada -- and Watson no doubt will be called out by shareholders at the meeting for his abhorrent and irresponsible mistreatment of indigenous groups in the Amazon.

The annual meeting, at company headquarters in San Ramon, will be highlighted by a face-to-face showdown between Watson and renowned Ecuadorian indigenous leader Humberto Piaguaje. Piaguaje, a Secoya elder, has traveled from his jungle home to attend the meeting. He is being hosted by Amazon Watch, a U.S.-based environmental group that is organizing a major protest outside during the meeting.

Watson and Chevron's Board will be on the hot seat over a number of issues:

**The company's Ecuador liability -- originally $9.5 billion -- is getting worse by the day as statutory interest in Canada (where the villagers are trying to enforce their judgment against Chevron's assets) has pushed up the amount to roughly $11 billion. Just last week, two top Chevron executives were forced to answer questions under oath in a deposition in Canada; a critical court hearing is scheduled for September that has the chance of knocking out all of the oil giant's defenses.

**Under Watson's leadership, Chevron is flailing not only over the Ecuador issue but over its core business. The company recently reported its first quarterly loss in 13 years; revenue is down 75%; and climate change threatens to leave shareholders with billions of dollars of "stranded assets" as the world moves away from fossil fuels.

**A major Chevron shareholder, Newground Social Investment, has filed a resolution that asserts that Watson's management team "has mishandled a number of issues in ways that significantly increase both risks and costs to shareholders. The most pressing of these issues is the ongoing legal effort by communities in Ecuador to enforce a $9.5 billion Ecuadorian judgment for oil pollution." The resolution follows a complaint to the SEC by a U.S. Congresswoman that suggests the company is trying to downplay its Ecuador liability. Newground also published a letter on the SEC website calling for shareholders to vote for the resolution.

**It is increasingly clear that Chevron is responsible for one of the world's most dire humanitarian catastrophes in Ecuador. Numerous independent studies confirm that cancer rates in the region where Chevron operated have skyrocketed; thousands of indigenous peoples and farmers have died of cancer and other oil-related diseases. Yet at great cost, Watson continues to pay 2,000 lawyers from 60 law firms to fight some of the most vulnerable people on the planet.

In the press release put out by Amazon Watch, Piaguaje said

Our leaders plan to confront Mr. Watson with judgments from multiple courts mandating that the company pay its pollution bill to the people of Ecuador. Mr. Watson needs to accept responsibility for Chevron's environmental crimes in Ecuador, apologize to the company's victims, and abide by court orders that compensation be paid. Until he abides by the rule of law, Mr. Watson and Chevron's Board members will be considered by us to fugitives from justice subject to arrest for crimes against humanity under principles of universal jurisdiction.

Well said, Humberto. Perhaps you should consider making a citizen's arrest of Watson at the meeting.

In previous shareholder meetings, Watson has suffered a series of biting rebukes over the Ecuador liability. One resolution critical of Watson's mishandling of the case received a whopping 38% support from shareholders.

Chevron's shareholders should use the annual meeting to re-assess whether the conflicted Watson -- who made $22 million in compensation last year from a Board that he controls -- has the vision to fully grasp what it means to serve shareholder interests.